Getting Paid (Part 2)

There are many reasons why people are late paying in business.
• They may just be disorganised. Unfortunately, many self-employed persons are not good with their administration because they set up their business as they have good skills in a specific sector but may not have the necessary business, selling or management skills. Simple lack of organisation is a key reason why many people are late payers.
• Another key reason for late payment is that you have not met the customer’s financial system requirements. This is particularly common when dealing with larger companies who have formalised administration systems. The customer will need specific paperwork that a smaller business may not produce. An important factor here is to understand that many businesses will now only pay on receipt of a monthly statement. Thus, a small business person will send in their invoices and wonder why they are not being paid, whilst the administration department of the customer is holding the invoices until they are sent a statement. You need to know your customers requirements.
• Unfortunately, a small percentage of people are acting with fraudulent intent. These are conmen (and unfortunately conwomen) and there is lilt you can do once they owe you money. The key is to ensure that you don’t do business with them in the first instance.
• In the current financial circumstances many businesses are forced to engage in a policy of not paying on time. In a situation where businesses cannot get overdrafts, extensions on overdrafts or other short-term finance, many businesses are being forced to hold on to as much cash as possible. Thus, putting off payment is a strategy that is being used. In this case you will probably get paid but you will have to wait.
• Finally, the customer may simply not have the money. There is a limit to what you can do here but there are 2 factors you should be looking out for. First, customers who owe you money and are keeping in regular contact are showing good faith. If you have to chase up people then this is a bad sign. Second, people who are paying in bits and pieces are showing good faith but those who are not are a serious concern.

The key to getting paid is all about administration. Making sure that you send out your invoices, statements, and follow up calls religiously is the primary method of ensuring that late payments are limited. Specifically, you need to be making time very week to do the following
• Update purchase and expenditure ledgers/books
• Send out invoices (immediately)
• Send out statements (monthly)
• Send out letters on overdue accounts
• Bank reconciliation
• Bank lodgement record

These are the key pieces of administration and information necessary to know:
• Who owes you money
• How much do they owe you
• How long overdue is the payment
• When your systems are properly set up, you know what actions to take and when

Armed with this information and proper systems, you can seriously limit the number of people who owe you, how much they owe you money and how long they owe you. Good administration and good cash flow are two sides of the one coin.